Tuesday, March 30, 2010

Energy: "Gasoline vs bimbos with big hair"

From FT Alphaville:

We didn’t say that..

Stephen Schork of the daily energy Schork report did. And here’s the graph, charting exactly that. Gasoline versus err, bimbos, by which he actually means entertainment spending in the US as a percentage of total consumption expenditure (the reference is to Snooki in case you’re really curious):

Now, the reason he’s pointing the above out is because gasoline spending as a percentage of total expenditure, according to his stats, has been heading steadily higher since January 2009. Spending on entertainment, meanwhile, has been falling. Which appears to indicate a fine balance between the two.

Although, as he also points out, savings — which dropped to their lowest point since November 2008 — should be considered in that equation too.

Nevertheless, the point is, will refiners shortly be coming up against a consumer demand threshold with respect to the prices consumers will or will not be capable of tolerating? And if they do, how will they respond?

Gasoline prices have in part been rising because refineries responded to the glut in product supply over the year by cutting utilisation rates — that is, they reduced production, shutting down refineries altogether or closing an increased number of facilities for maintenance. Here’s a good chart from KBC Energy Economics reflecting the trend:

This had the effect of bolstering prices enough to incentivise much of the gasoline and other refined products held in floating offshore storage to be transported back inland over the course of the winter:

But now Goldman, for one, believes gasoline prices will have to fall...MORE